Article

The Elephants in the Davos Ski Lodge

Published

24th January 2012

The epic global shifts of 2011 transformed the political, economic, and social landscape from Shanghai to Sao Paolo, Washington to Cairo. No leader (not even Vladimir Putin) is safe from the vagaries of social unrest; no economy (not even China’s) is unaffected by contagion from an over-leveraged, under-managed euro zone. No country (not even the United States) is immune from the threat of asymmetric attacks—anything from a terrorist bomb to cyber-warfare.

Volatility will be the rule, not the exception in 2012. What I call the emerging Archipelago World of fragmenting power, capital, and ideas is inherently unstable— as vulnerable to old conflicts and new threats as it is open to the dynamic entrepreneurship of rising powers and corporations remaking the map of the world.

A 20-year period of one-world, one-way globalization is being replaced by an era of competitive sovereignty. The walls are going back up. Developed and developing states alike are vertically integrating political and economic interests across public and private sectors in a global race for growth, employment and security.

Having previously embraced interdependence as the motivation for horizontal integration across markets and regions, states as diverse as Canada, Finland, Saudi Arabia, Japan, Brazil, Turkey and the United Kingdom are now pursuing more national strategies for economic and political security. For investors, corporations, and governments doing diligence on their global exposures, acknowledging this new reality is an essential starting point. Forget stability and predictability. Abandon the notion of global solutions to global problems. Instead, develop deep, granular understanding of the distinct political and economic context of new markets. Seek cooperation and alliances of interest, beginning with the discreet interests of these states and their economies. Embrace complexity, and understand that the successful management of political and economic discontinuities will be the essence of stability in the 21st century.

Four themes are likely to dominate the environment in which global investors, companies and institutions will seek to limit the downside to risk and capture the upside to volatility in 2012.

A global reset

A new strategic landscape will take form amid a global reset marked by leadership change in China and national elections in the United States, Russia, and a halfdozen other pivotal powers. The systemic banking crisis in the euro zone will force Berlin and the European Central Bank to pick their poison—and either become a sovereign lender of last resort or see the 27-member ECB’s dreams of fiscal union evaporate. For the Middle East, the second year of the Arab Awakening will begin under a cloud of increasing peril and paranoia. The movement for more legitimate and accountable governments in the Arab world will be tested by the still-powerful forces of tyranny, corruption, and fundamentalism—a scenario that will further draw in Israel, Iran and Turkey as strategic arbiters of the region. For the global economy, 2012 will likely see continued disarray, with the gap between the debtor and creditor nations of the world likely widening.

War over a nuclear Iran

The Middle East, more than any other region, gives validity to the old joke that even paranoid schizophrenics have enemies. Add to the very real perils arising from deeply divergent interests of Arabs, Turks, Persians, and Israelis heightened paranoia about Iran’s nuclear program. Gulf countries are as concerned about Iran’s meddling in their internal affairs as they are about its nuclear ambitions. Combine this with Israel’s growing fear of Iran reaching a point of no return in its nuclear weapons program and the stage is set for a confrontation— whether planned or accidental— in 2012. Non-military options for halting Iran’s nuclear weapons program have not yet succeeded, nor have they failed. However exasperating the diplomatic track may seem, growing talk of a military option risks creating a logic all its own.

Nationalism, populism, and protectionism

A fragmenting map of the world provides, in even the best of times, an opening for the forces of populism and nationalism, and those movements are coalescing now —from China to the United States to South Africa. Factor in the cyclical deleveraging and austerity in the West, and it is only a matter of time before isolationist politics gain traction.

The best antidote to this lies not in another vacuous appeal to “global awareness,” but rather in setting out the case for why the national interest is best served through a mosaic of regional and global alliances. The countries and leaders now gaining stature on the national stages— from Turkey to Brazil—are those that understand that a sustainable economic strategy begins with delivering growth for the citizens of their own nation first. They see open markets and free trade not as ends in themselves, but as means to broadbased prosperity; they are making reforms to secure greater competitiveness and investment. Down this road lies a messier, more populist, more contingent phase of globalization with beggar-thy-neighbor policies—a spiral of currency wars, capital controls, and tariffs that could accelerate the current contraction through a wave of worldwide protectionism.

Cyber-attack on a global institution

Despite a dramatic increase in the capital and technology devoted to cyber-defense in the West, the threats from new sources of cyber-war are multiplying. The West reveled in the success of its Stuxnet and other forms of cyber-sabotage against the Iranian nuclear program, but it will soon have to face the consequences of the proliferation of these technologies. Governments, terrorists, and even solitary hackers are increasingly amassing the ability to launch a cyber-attack against a Western government or multinational. The real test of an effective cyber-defense will not be “Can you prevent an attack?” It will be, “Can you survive one?”

2012: The world of the state

The burgeoning role of the state in an age of sovereign crises and solutions will be a defining feature of the strategic landscape. The locus of political legitimacy has returned to the nation-state, and as economic and political power shifts to emerging markets, no solution that isn’t both global and national will be successful or sustainable. A new kind of Great Game will be played in 2012—winners will be those states and corporations seeking success irrespective of the traditional boundaries of geography, ideology, interest, or alliances.

Related Insights

Overview

Strategic advantage in a volatile world

The Firm

Nader Mousavizadeh and David Claydon founded Macro Advisory Partners in 2013 to provide a global client base with a competitive advantage in a complex world. Driven by a belief in the value of independent, long-term strategic counsel, MAP's co-founders created a firm that delivers actionable macro strategies to decision-makers in business, finance and government.

A volatile and fragmenting global landscape requires an integrated understanding of the political and economic drivers of change. Drawing on MAP's unique network, the firm’s partners — including Mona Sutphen and John Sawers — create tailored and innovative macro solutions mapped to the specific exposures, risks and opportunities facing the firm’s clients.

MAP's London and New York-based team of partners, directors and associates is supported by a Global Advisory Board and a group of Senior Advisors drawn from leadership positions in the worlds of business, finance, politics, diplomacy and technology.

Partners
Global Advisory Board
  • Kofi Annan

    Chairman, The Kofi Annan Foundation
    Kofi Annan was the seventh Secretary-General of the United Nations (1997 to 2006), and now serves as Chairman of The Kofi Annan Foundation.
  • William Burns

    President, Carnegie Endowment
    Ambassador Burns is President of the Carnegie Endowment for International Peace, and was the 17th United States Deputy Secretary of State.
  • Mala Gaonkar

    Co-portfolio Manager, Lone Pine Capital
    Mala Gaonkar is Co-portfolio Manager at Lone Pine Capital, and a former consultant at the World Bank.
  • Vikram Mehta

    Chairman, Brookings India
    Vikram Mehta is Executive Chairman of Brookings India and former Chairman of the Shell Group of Companies in India.
  • David Miliband

    President, IRC
    David Miliband is President and CEO of the International Rescue Committee, following a distinguished political career in the United Kingdom.
  • Vali Nasr

    Dean, SAIS
    Dr Vali Nasr is Dean of the Paul H. Nitze School of Advanced International Studies of Johns Hopkins University.

Concept

Macro Advisory Partners provides corporate, investor and sovereign clients with the strategic insights to navigate the intersection of global markets, geopolitics and policy.

In a world defined by volatility and uncertainty — and an abundance of information, yet scarcity of insight — we identify the strategic implications for decision-makers tasked with maximising opportunity and minimising risk. The Archipelago World is characterised by fragmenting markets, populist politics, policy unpredictability, revolutionary technology, and weaponised arenas of finance, regulation and cyber.  The implications of this environment are dramatic and lasting. To help our clients anticipate and navigate these shifts in the macro landscape, we bring together deep on-the-ground analysis with long-term strategic judgement tailored to our clients' specific interests, exposures and concerns.

For today's global investor and business leader, macro is just as disruptive a factor as technology. Our advice — delivered by the firm's partners through trusted, personal, long-term and dynamic client engagements — is drawn from the policy expertise and connectivity of our global network, supported by advanced data analytics. The firm's Global Advisory Board and a team of Senior Advisors with backgrounds in diplomacy, macro intelligence, investment strategy, academia and industry, support our partners with the judgements that enable us to provide clients with relevant, actionable and investable macro solutions.

Principles

A culture of partnership defines our firm — among the individuals we have attracted to our endeavour, and with the clients whose long-term interests we view as our own. Our team brings to our work a diverse range of global business, finance and government experiences that enable us not only to interpret a changing macro environment for our clients, but also to design specific solutions that enhance their performance and prospects.

The principles of independence, integrity and intelligence define our culture. Our clients include the world's leading technology, consumer, energy and financial services institutions. Our commitment to them — and to our people — is to deliver on our founding aim of building the world's leading macro advisory firm.

Portfolio

  • Engagement

    Middle East Market Expansion

    Facing a fragmenting market and changing regulation, a global financial services company uses MAP's advice to enhance its performance and footprint in the Middle East.
  • Engagement

    Managing a Complex Portfolio in a Volatile World

    MAP provides ongoing and ad-hoc advisory services to a significant investor client, which manages a complex portfolio of equity, credit, interest rate, commodity and foreign exchange exposures.
  • Engagement

    China Market Strategy

    A global consumer goods company achieves success in China with support from MAP's distinctive macro insights.

Contact

London
180 Piccadilly
London W1J 9HF
Tel: +44 207 917 9947

New York
One Bryant Park, 39th Floor
New York, NY 10036
Tel: +1 212 602 8721

info@macroadvisorypartners.com